Queensland, Hunter gas link should lower prices
The Hunter has among the most expensive gas in the country because it is at the end of the line for gas sourced from either the Cooper Basin in central Australia, which is transported via the Moomba pipeline, or from Bass Strait, which travels via the eastern gas pipeline.
This has set the scene for a renewed push to build a pipeline to access Queensland gas, particularly with the gridlock that has emerged in recent months over the development of local coal seam gas reserves.
In 2005, a group of Newcastle businessmen banded together to launch a pipeline following earlier work by the NSW government that demonstrated the economics of a link. It received a boost from subsequent plans by Queensland Gas to build a gas-fired power station in the Hunter, although these plans were shelved after British Gas bought Queensland Gas.
Initially costed by the NSW government at $300 million, by 2005 the cost had escalated to $500 million and is now put at about $1 billion.
The surge in pipe costs as a result of the development of several large gas export projects in Queensland threatened the viability of the proposal for a time, although prices have fallen more recently, paving the way for the proposal to be revived. The decline in steel costs has been partly offset by higher labour costs, however.
The forecast rise in east coast gas prices, with AGL pricing gas at $9 a gigajoule from 2016, up from about $6 now, has prompted large users to revive the proposal, which received NSW government approval in 2009.
There are questions about the prospective level of demand, since the looming surge in gas prices is forcing large energy consumers to scale back consumption.
It is believed a large US bottlemaker is studying plans to build a plant in Newcastle, but without access to cheaper gas it may not pursue the investment, while another potential user would be Mittal Cable, which is also planning a plant in the area.
The pipeline would challenge AGL's dominance in the local market, which will be consolidated as a result of its planned pipeline linking its own gas reserves at Gloucester to Newcastle, along with plans to build a gas storage unit at Newcastle.
AGL is also believed to be a likely buyer of the Vales Point power station and the associated Colongra gas peaker power plant.
Frequently Asked Questions about this Article…
The proposed pipeline would link Queensland gas supplies into the Hunter region (Newcastle area). Tenders are being called for the project, and investors should care because it could increase supply, boost competition and help lower the Hunter’s historically high gas prices—which has implications for energy companies, local industry and regional economic investment.
The Hunter currently has some of the country’s most expensive gas because it’s at the end of long pipelines from Cooper Basin or Bass Strait. Bringing cheaper Queensland gas into the Hunter is expected to increase price competition and put downward pressure on local prices. The article also notes rising east‑coast price expectations (AGL pricing gas around $9/GJ from 2016 versus roughly $6/GJ now) as a driver for reviving the proposal.
AGL is singled out as the dominant local supplier whose grip could be challenged. The article also mentions Queensland Gas (which had earlier plans for a Hunter power station that were shelved after British Gas bought the company), a large unnamed US bottlemaker studying a Newcastle plant, and Mittal Cable as potential industrial gas users. It also notes AGL’s own plans to link Gloucester gas to Newcastle and to build gas storage, plus AGL as a likely buyer of Vales Point and the Colongra gas peaker plant.
Initial NSW government analysis put the pipeline at about $300 million. By 2005 the cost estimate rose to $500 million, and the article states current estimates are around $1 billion. Cost pressures previously came from a boom in pipe prices linked to Queensland export projects; more recently steel prices have eased but higher labour costs have offset some savings.
Key risks include construction cost volatility (pipe, steel and labour costs), uncertainty over future gas demand because higher prices are already forcing large energy users to scale back consumption, and competition from other infrastructure projects. These factors could affect both the commercial case and timing for the pipeline.
Cheaper, more competitive gas supply is cited as a critical factor for large manufacturers. The article notes a large US bottlemaker is considering a Newcastle plant but may not proceed without access to cheaper gas; Mittal Cable is another potential investor. A reliable, lower‑cost gas link would improve the economics for such projects.
The new link would challenge AGL’s dominance in the local market by introducing alternative supply. At the same time AGL is positioning itself to consolidate market share through its own pipeline linking Gloucester reserves to Newcastle, plans for gas storage in Newcastle, and potential acquisition of Vales Point and the Colongra gas peaker plant.
Investors should monitor tender progress and any firm construction contracts, movements in pipeline and steel labour costs, east‑coast gas price trends (including major suppliers’ pricing), large industrial user commitments (which affect demand), and any new government approvals or company announcements that change the commercial case for the project.
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